Home Owners Associations are required to file taxes just like any other person or business. However, HOA’s are classified as non-profit organizations and are therefore exempt from paying taxes. While HOA’s are exempt from paying taxes they still have to file their taxes just like any other person or business.
There are two ways to file a tax return for an HOA:
- As a corporation
- Under IRC Section 528
Most HOAs opt for the second option because under IRC Section 528, if nearly all the income comes from assessments and most of the expenses are from maintenance work, then there will be no tax liability.To qualify under IRC 528, the following must be met:
In order to meet the requirements for IRC 528, the following must be accomplished:
- A minimum of 85% of the units must be utilized as residences
- At least 60% of the association’s gross income must be gathered from members who own their units, as opposed to customers who use the HOA’s services (renters)
- At least 90% of the HOA’s expenses must go towards operating and capital expenses
- Any leftover income cannot be used for the members’ benefit
At KC’s Bookkeeping and Taxes, we understand that the process of filing taxes for your Home Owners Association can seem confusing or overwhelming, especially if you are just getting started. But don’t worry – we are here to help! We make the process simple and easy. So if you have any questions, please don’t hesitate to give us a call or send us an email. We would be happy to assist you.